Summary: We’ve reached a critical point in this business cycle. We enjoyed the years of fiscal and monetary stimulus; now comes the dismount. Only after the stimulus ends will we learn the true strength of our economy. Today we look at the monthly jobs report, perhaps the single most important indicator. Three graphs tell the story, cutting through the fog of confusion spread by the news media.
- Why we’re ignorant and confused
- The weak good news: more employed
- The bad news: percent employed
- More bad news: wages
- For More Information
(1) Why we’re ignorant and confused
Reports about the monthly jobs report illustrate why we’re confused and so often ignorant about important aspects of our lives.
- We get numbers without context. Raw numbers by themselves tell us little; the percent change has meaning. Also useful are descriptions of the trend and adjustments for inflation (vital when looking at long-term changes).
- We get detailed analysis of noise, lavish attention to tiny monthly fluctuations — changes usually smaller than the data’s error bars.
Instead let’s focus on the big things. Three graphs tell the story about the September jobs report. I have been showing readers these numbers for years. The first big story is that these trends have not changed.
Before we start, remember the price paid for this expansion. Five years of near-zero interest rates (since December 2008) — ending in Q2 or Q3 of 2015). Three rounds of quantitative easing — ending this month. And an mind-bending expansion of the Federal public debt — $809 billion added during the fiscal year just ended (a 6.8% increase, equal to 4.7% of GDP). That the economy needs such large stimulus in the sixth year of an expansion is unprecedented (usually by now the economy has overheated from too-fast growth) — and is the second big story.
Now comes the dismount, when we must dial the stimulus down to zero. Understanding the trend helps us prepare for what might happen next.
(2) The weak good news: more employed
Steady slow growth at about 2% now in its fourth year. We’re not in a recession. No signs of the often-predicted acceleration.
(3) The bad news: per cent employed
The percent of people in their prime years (16 – 64) who are employed peaked in 2006, fell in 2007 – 2011, and has only weakly recovered since then (back to the level of 1984, reversing much of the long increase from women entering the work force). There are many factors affecting this, but the trend since 2006 probably reflects weakness not strength in the US economy.
(4) More bad news: wages
For several years conservatives have confidently predicted that the economy would soon overheat — with wage inflation coming! We wish it were so — that employers would share their record high profits, resulting from decades of productivity gains. Here’s a rough estimate of YoY changes in the average American’s real wages: hourly earnings for private sector production and non-supervisory workers deflated by the CPI of urban wage earners.
The bottom line: workers real wages fell for two years. Since the start of 2013 they’ve grown slowly. Very slowly. No signs of the often-predicted acceleration. This is bad news when occurring so late in an expansion. If we’re not getting strong real wage growth in the fifth year of an expansion (i.e., an old expansion), we might not get it before the next recession.
(5) For More Information
Recent posts about this economic cycle:
- Are we following Japan into an era of slow growth, even stagnation?, 18 November 2013
- Has the Fed blown another housing bubble?, 30 January 2014
- The dilemma of the US economy: can’t take off & too close to the brink, 9 July 2014
- Has America’s economy entered the “coffin corner”?, 10 July 2014
- Economists forecast a boom soon. The numbers show slowing. Who is right?, 21 July 2014
- See the true trend of the US economy, hidden in the daily news, 1 August 2014
- It’s not too soon to worry about the US economy. There are things worse than slow growth., 18 September 2014
- Listen to the slowing US economy, hear echoes of Japan, 24 September 2014